Major government investment aimed at industrialising the economy

As Oman ramps up oil production and strives to reduce raw exports and bolster its downstream hydrocarbons sector, the petrochemicals industry is poised for strong expansion in the coming years. The government is pouring billions of dollars into the sector in an effort to industrialise the economy, improve value addition and create jobs, with a host of new projects in Sohar and Salalah now in the pipeline.

Overview

Petrochemicals developments in Oman are largely concentrated in Salalah and Sohar. The government-owned Oman Refineries and Petroleum Industries Company (ORPIC) operates one refinery and two petrochemical plants in the Sohar Industrial Estate, supplied by crude oil that is transferred from the Mina Al Fahal refinery in Muscat to the Sohar refinery, with both facilities maintaining production capacity of 220,000 barrels per day. Crude oil shipped to Sohar is refined into various fuels or redistributed to an ORPIC-owned aromatics plant in Sohar to create plastics ingredients, including benzene and paraxylene, or to an ORPIC-owned polypropylene plant to make polymer pellets. Takamul Investment Company, established in 2006, is a subsidiary of state-owned Oman Oil Company (OOC), and has been at the forefront of new investments in value-added industrial projects.

Petrochemical activities have shown steady expansion in recent years. According to the National Centre for Statistics and Information (NCSI), the total number of registered chemical and petrochemical establishments in the sultanate grew by 21.2% between 2010 and 2012 to reach 337 establishments by 2013, with total investment in the sector hitting OR5.25bn ($16.59bn) in the same year.

Investment in the sector is expected to show a sharp increase in the coming few years, with new facilities in the Sohar and Salalah industrial regions expected to contribute significant new capacity before 2020. In October 2012 Takamul announced that it was planning up to 10 new metals, petrochemicals and minerals projects by 2015, with a value of between $500m and $1bn.

Although Takamul officials placed particular emphasis on new metals projects, the company has also invested heavily in petrochemicals, with earlier investments including a 20% stake in a $850m purified terephtalic acid (PTA) and polyethylene terephthalate (PET) plant located in Sohar, which will offer 1.1m tonnes per annum (tpa) of PTA and 500,000 tpa of PET when production begins in 2016. Takamul is proceeding on investing in a metaxylene/purified isophthalic acid (PIA) plant under development by OOC in Sohar, the greenfield Liwa Plastics Project in Sohar, launched in conjunction with the ORPIC-led Sohar Refinery Improvement Project (SRIP), and Salalah’s Luban ammonia project.

PIA Plant

In January 2014 Takamul announced plans to invest in two new petrochemical facilities: an ammonia plant in Salalah and a PIA plant in Sohar. PIA is a critical building block required for the production of polyester, and the world’s PIA industry is highly concentrated, with few suppliers worldwide; as such, the OOC’s PIA plant will add substantial economic benefits to Oman’s petrochemicals industry.

Upon completion, the $800m Sohar PIA plant could see Oman become a globally preferred supplier, with capacity expected to benefit from readily available metaxylene feedstock, courtesy of ORPIC’s Sohar refinery, as well as a strategic geographic advantage at the crossroads of Europe, Africa and Asia, but just outside the Strait of Hormuz. While the project is still in its front-end engineering and design stage (FEED), PIA capacity at the Sohar plant is expected to reach 100,000 tpa, with operations scheduled to commence in 2017, following a FEED study and 2015 investment decision.

Salalah’s Luban Ammonia Plant is expected to add 1000 metric tonnes per day of ammonia capacity. The plant, which is the latest in a range of petrochemical ventures being developed in the Salalah Free Zone, will be constructed adjacent to the Salalah Methanol Company, of which Takamul holds a 10% stake.

Liwa Plastics Project

The Liwa Plastics Project, meanwhile, will see the OOC and ORPIC build a sizeable new steam cracker and polyethylene plant at the Port of Sohar, in partnership with Takamul.

The Liwa project will process light ends produced in ORPIC’s Sohar refinery and aromatics plant, as well as optimise natural gas liquids (NGLs) extracted from available natural gas supplies. Valued at $3.6bn, the project is expected to double ORPIC’s profitability when construction finalises in 2018, boosting annual export of polypropylene and polyethylene to 1.4m tonnes.

Contracts

In March 2014 ORPIC announced it had awarded two construction contracts for the Liwa project: Engineers India won a project management contract, while Netherlands-based Chicago Bridge and Iron (CB&I) won a FEED contract for the project.

CB&I’s contract involves services for a grassroots 800,000-tpa ethylene plant, a pygas unit, a methyl tertbutyl ether (MTBE) unit, two polymer plants, a gas plant and pipeline, and related off-sites and utilities. The ethylene plant is expected to employ technological innovations that include selective cracking heaters and recovery section design offering low-pressure separation and mixed refrigeration, minimising overall costs.

Additional contracts came in July 2014 when ORPIC awarded five technology licensor contracts worth an estimated $80m, which will establish the aforementioned NGL extraction, pygas hydrogenation, MTBE, polypropylene and polyethylene units in the facility.

NGL extraction technology, which involves stripping certain components from natural gas to use the gas as feedstock in plastics production, will be provided by US-based firm Randall, a subsidiary of Lummus Technology, and utilised in a natural gas extraction plant in Fahud. The plant will send products through a 300-km pipeline between Fahud and Sohar Industrial Port.

Technology for the pygas hydrogenation unit will be provided by France’s Axens, while CB&I have been selected as the licensor of the plant’s MTBE producing unit. MTBE is used as an additive to gasoline to reduce engine knocking. Italy’s Basell Poliolefine, meanwhile, will provide technology for the plant’s polypropylene unit, a single bulk polymerisation line producing pellet products in 25-kg bags and in bulk for export and local markets. Polypropylene is used in a variety of applications, including packaging and labelling, textiles, stationery, plastic parts and reusable containers.

Finally, Univation, a Texas-based company, will provide technology for the polyethylene unit, which will produce the market’s current in-demand plastics, used in the production of film and parts. As with the plant’s polypropylene unit, polyethylene supplies will be available in pellet form in 25-kg bags and in bulk.

Power Problem

While recent developments at Sohar and Salalah have boosted prospects for the petrochemicals industry, the issue of power supply continues to affect the sector. According to Oman’s National Centre for Statistics and Information, industrial electricity consumption jumped 642% to 3436 GWh in 2012, from 463 GWh in 2005.

Although this demonstrates the sultanate’s rapid advancements in industrial development, it has also posed challenges to future industrial expansion, with one major petrochemical project already delayed due to electricity supply issues.

In August 2014 work on a planned chlor-alkali and ethylene dichloride plant in Salalah, a $550m project being developed by Czech Republic-based company Saltic, through South Korean sub-contractor Hanwha, was halted following the Oman Power and Water Procurement and Authority for Electricity’s decision that it could not supply electricity to the venture.

Maximising Potential

Fortunately, new developments within the Khazzan tight gas reserves, a BP-led project that could add an estimated 1bn cu feet per day of natural gas to the sultanate’s reserves, have painted a brighter long-term forecast for the petrochemicals sector’s development and, indeed, overall industrial development in Oman. “The BP Khazzan project’s importance to the country is underlined by the fact that industrial manufacturers forecast their growth and expansion based on the anticipated availability of gas feedstock. We can only grow as big as the gas supply will let us,” N A Ansari, CEO at Jindal Shadeed, told OBG.